Monday, January 30, 2023

Beyond sanctions

As the death toll mounts, thousands displaced and cities after cities in Ukraine razed to the ground by Russian rockets and missiles; the world watches with impotent rage. The US and Western nations have imposed economic sanctions but contrary to popular media narratives, Russia has friends and is quietly redirecting financial flows and business to allies in a determined effort to evade Western sanctions. Over the past week, Western countries have ramped up sanctions against Russia in response to its invasion of Ukraine. The measures are the toughest since those imposed on Iran in 2010 and North Korea in 2013. Russia is the largest economy and the largest country globally, by population, against which such strong sanctions have ever been implemented. The West frankly admit these sanctions will not immediately stop the war, but hope that they would inflict enough damage on the Russian economy to help de-escalate the conflict. The devaluation of the Russian rouble will certainly affect consumer inflation, which may grow by an additional 4-5 percent for a 40-50 percent increase in the value of the dollar. By end of last month, consumer price inflation in Russia exceeded 9 percent, with food inflation exceeding 12.5 percent. In the next 12 months, Russian banks and companies will have to repay more than $100bn. This is a hefty schedule, and many Russian borrowers counted on refinancing old debts. Now, this opportunity will be closed for many of them. Russia still has another big window in China, the world’s fastest growing economy. Over the months, the sanctions will also be felt in the realm of advanced technology etc . Russia has traditionally been an importer of advanced technology, used in all kinds of technologically complex products, from vacuum cleaners to nuclear-powered icebreaker ships. Many military products will be impossible to produce in Russia if sanctions remain in place. Placed in such a desperate situation, Russia will hope to look at China to redirect banking requirements and stay on although it may not be able to obtain the hi-tech products it needs. The sanctions could damage the Russian economy but not obliterate it, given some major loopholes purposefully left by the sanction architects. For the moment, whatever happens to the Russian economy is only to be expected by a country that has thrown all consideration for human rights and conduct of war as per international laws. Russia has become a rogue super power under Vladimir Putin who sees himself as another Peter the Great or Stalin. The West have to do more than vainly hoping that their economic sanctions will be the magic bullet. The world is compelled to watch as Russian bombs indiscriminately targets everybody in Ukraine. This is Putin’s great military strategy- bomb and decimate Ukraine and then roll his tanks to claim victory. There is much that the US and its NATO allies can and should do and that is- step in and send clear message to Putin that he cannot get away with murder just because the world is afraid of a nuclear war.

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